In the first and second part of our series, we explored in depth the challenges that the buy-side and the sell-side currently face when thinking about building smart desktop strategies. Chief among those, according to our recent roundtable discussion with leading global buy-side and sell-side firms, is the standardisation of data and messaging protocols to enable seamless communication and interoperability. In the third and final part of this series, I will outline three takeaways which, when taken into account, can help pave the way forward for a smart desktop strategy which can achieve the right balance of both creating revenue for the sell-side and delivering value to the buy-side.
First, the smart desktop of the future is an aspiration for both the buy-side and the sell-side. The buy-side is, however, currently focused exclusively on resolving internal issues of communication and standardisation of information between teams. The sell-side, on the other hand, is looking both externally to find new routes to market by promoting desktop interoperability, as well internally by focusing resources on roadmaps which are IP-driven and therefore have the potential to generate new revenues in the future. Despite these conversations being inward-looking, both parties recognise that with the technology and vendor offering continuing to mature, there is an urgent need to think about a standardised messaging protocol which would make the future vertical integration of technologies and vendors much more seamless.
Second, the Financial Desktop Connectivity and Collaboration Consortium (FDC3), which was founded in 2017 by OpenFin and contributed to FINOS, is seen as the only non-proprietary standard available and there is broad desire to make it work. There is an opportunity to make it part of a smart desktop strategy, something that both buy-side and sell-side can buy into early on rather than trying to retrofit it. What is currently holding FDC3 back, however, is that it is trying to do too much too soon, creating a workflow that works across firms and across market segments. There is insufficient agreement between interested parties to get it started and risks stalling any progress.
Third, while the aspiration is to have a workflow solution which works seamlessly across asset classes and allows customisation, the reality is that the success of standardised messaging protocols will rest on the ability of the sell-side and buy-side to take a few successful small steps. Identifying the issues to prioritise is a challenge in itself. One way of doing it would be to start with something simple, demand-led, which is not associated with differentiating IP, but something which all firms are willing to supply to allow for implementation that is possible in a three to six months period which would then create momentum towards greater standardisation.
Another way of creating momentum would be to promote those internal discussions and issues towards standardisation which would then enable a second order network effect to happen when the infrastructure is there. There are currently different conversations happening across different asset classes. There is a lot of work that goes into standardising pre-trade inequities, for example, but less so in bonds and FX. There are differences between equity portfolio management systems and fixed income portfolio management systems which do not currently communicate with one another, and if you overlay that with the quantitative teams and try to pull into one strategy, the issue of multiple technologies and protocols is evident. These are all issues that can be addressed through standardisation and improved communication.
In conclusion, breaking down internal silos would appear to be the best way to create momentum – and demand – among the buy-side, making external connectivity with the sell-side and vendors much more seamless and less daunting. This would then allow for those conversations between the buy-side and the sell-side to take place to allow for standardisation across firms and asset classes. Both parties will stand to benefit from such connectivity if they offer a sticky revenue generation opportunity for the sell-side and add value for the buy-side, with FDC3 acting as the forum where those discussions are facilitated and implemented. It’s an ambitious project but, by trying, both the buy-side and the sell-side stand to gain much more than they would lose.
This article is part of a three-part series which explores the desktop strategy of buy-side and sell-side firms, looking at the challenges faced today and exploring possible solutions.
Article I "The road towards a smart desktop strategy is riddled with challenges" Click here >>
Article II "Small steps towards a smart desktop strategy" Click here >>
CEO and co-founder,
Adaptive Financial Consulting Ltd